Shakti Infra Blocks: Choosing Between a Chase, Level and Pre-build Plan
Shakti Infra Blocks runs one paver-block plant near Nagpur. The sales team has frozen a four-quarter forecast in standard block equivalents: 8,000, 10,000, 14,000 and 8,000 units. Regular capacity is 12,000 units a quarter at a variable cost of Rs 30 per unit; overtime is available up to 2,000 units a quarter at Rs 45; nothing is subcontracted. Opening inventory is nil and the plant wants nil at the end of Q4. Holding costs Rs 4 per unit per quarter and a backorder costs Rs 12 per unit per quarter. The works manager proposes a level plan of 12,000, 10,000, 12,000 and 6,000, saying steady output is always cheaper and keeps the union quiet. The marketing head wants to build exactly what is sold each quarter. Separately, the plant plans twelve SKUs as a single aggregate unit, and a builder has just asked for 3,000 blocks of one size in six weeks.
1. Cost the works manager's level plan and the marketing head's chase plan. Is either of them the cheapest feasible plan, and which would you execute?
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Chase (produce what is sold): Q1 8,000, Q2 10,000, Q3 12,000 regular + 2,000 overtime, Q4 8,000. Regular 38,000 × Rs 30 = Rs 11,40,000; overtime 2,000 × Rs 45 = Rs 90,000; no inventory. Total Rs 12,30,000.
Works manager's level plan: 12,000 + 10,000 + 12,000 + 6,000 = 40,000, all inside the 12,000 regular limit, so Rs 12,00,000. Ending inventories: 4,000; 4,000; 2,000; nil = 10,000 unit-quarters × Rs 4 = Rs 40,000. Total Rs 12,40,000.
His claim fails on his own numbers: his plan is the most expensive of the three, because it builds inventory in Q1 and Q2 that Q3 does not need in full.
The cheaper plan both men missed: Q1 8,000, Q2 12,000, Q3 12,000, Q4 8,000. This pre-builds only the 2,000 units that Q3 cannot make within capacity. Inventory is 0; 2,000; 0; 0, so holding is Rs 8,000 and the total is Rs 12,08,000 - Rs 22,000 below chase and Rs 32,000 below the proposed level plan, with no overtime at all.
The lesson is that pre-building at idle regular capacity (Rs 4 a unit-quarter) beats overtime (Rs 15 a unit premium) whenever the peak is short. Execute the Rs 12,08,000 plan, but note the buffer entering Q3 is only 2,000 units; one extra 1,000 units built in Q2 costs Rs 4,000 of holding and is cheap insurance against a Rs 12 backorder.
2. The aggregate plan treats twelve SKUs as one unit, and a builder wants 3,000 blocks of one size in six weeks. What does the aggregate plan hide, and would you accept the order as it stands?
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The aggregate plan commits capacity and inventory in a common unit; it says nothing about which of the twelve SKUs, in what sequence, on which moulds. The order therefore has to be tested against the master production schedule, not the aggregate plan.
Check the load. The 3,000 single-size blocks fall inside Q2 or Q3 depending on the six-week date. Q3 is already fully committed: 12,000 units of regular capacity plus the entire 2,000-unit buffer drawn down, so there is zero slack. Q2 has 12,000 committed against 12,000 capacity, also zero slack. So accepting means displacing 3,000 units of the standard mix or running overtime, and overtime is capped at 2,000 units a quarter - the order as placed is not feasible without re-planning.
Three further points decide the answer. First, the order needs a mould change; if the changeover is long, 3,000 units is below the economic batch and the true cost is changeover time, not variable cost. Second, six weeks probably falls inside the frozen zone of the MPS, where the schedule should not be disturbed; promising inside the frozen zone pushes instability down to the shop floor. Third, the aggregate plan's capacity is a plant figure, but the binding constraint may be one moulding machine or drying bay, and that is what must be checked.
Recommendation: quote eight to nine weeks, or accept at a premium that covers changeover and re-planning, and pre-build 1,000 extra units in Q1 to create room. Do not confirm six weeks on aggregate-plan logic alone.